CD vs. Money Market. Which is Right for You?

piggy bank on a calculator

Know the pros and cons to make a smart decision.

Two of the most popular savings tools today are money market accounts and certificates of deposit (CDs). However, it’s not always clear which one is better for your savings goals.

In this article, Cadence Bank Personal Banker Bryan Puryear describes each type of savings tool and why you would choose it, so you can make the most informed choice for what you’re trying to accomplish.

Each type of account has its pros, cons and tradeoffs

According to Puryear, a money market account is an interest-bearing account that usually pays a higher interest rate than a traditional savings account while also providing limited check-writing ability.

“A money market account offers benefits that are typical of both savings and checking accounts,” says Puryear. “However, they usually require a higher minimum balance than a savings account. Therefore, it’s important to be sure you can maintain the minimum balance to avoid fees. These fees could negate the additional interest you’ve earned in a money market account when compared to a traditional savings account.” CDs are time deposits that usually pay higher interest rates than money market accounts, and this interest rate is fixed for the term of the CD. But this higher interest comes with a tradeoff. “You have to leave your money invested in the CD until it matures,” says Puryear.

CD maturities typically range from three months to three years. “The longer the maturity, the higher your interest rate and the more you can potentially boost your earnings,” says Puryear. For example, a longer-term CD (such as three years) will typically pay between 1.0 and 1.25 percentage points higher than a shorter-term CD (such as three months).

Gauge your liquidity needs

Before investing in a CD, you need to make sure you won’t need to withdraw the money before the maturity date. “Penalties for early CD withdrawals will cost you much, if not all, of the interest you earned,” says Puryear.

Also, CDs don’t offer check-writing ability or the ability to make ATM withdrawals and perform electronic transfers like money market accounts do. Keep in mind, there is usually a limit to the number of withdrawals that can be made from money market accounts each month.

Both money market accounts and CDs are considered low-risk savings tools, and both are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). “So your money receives the same government protection regardless of which savings tool you choose,” says Puryear.

So, which is better?

Given these parameters, in what circumstances is one of these savings tools a better choice than the other?

Puryear says that a money market account may be the best option if you have a relatively large amount of money and want to earn a higher interest rate than you could in a savings account, but also need ready access to funds.

“For example, many people use money market accounts as their emergency savings funds,” he says. “They can access the money easily and without penalty if they need it to cover a financial emergency, like an expensive car repair or large out-of-pocket healthcare expenses. They’re maximizing their return on savings while keeping the money liquid.”

Conversely, a CD might be the best option if you want to earn the highest interest rate possible and are comfortable keeping your money locked up for a minimum period of time. “You have to be willing to trade easy access to your money for higher earnings,” says Puryear.

“Remember that the penalties assessed for early withdrawals from CDs will likely offset the additional earnings you enjoyed,” he adds. “So CDs usually aren’t the right choice for an emergency savings fund, since they are so illiquid.”

Instead, CDs may be a good choice if you have medium-term (such as one- to three-year) savings goals like buying a car or making home improvements. “You’ll maximize your earnings without taking on the kind of risk that’s involved when investing in the stock market,” says Puryear.

Make an informed decision

It’s important to choose the best savings tool based on your specific goals. Otherwise, you could lose out on additional interest you could be earning or end up paying early withdrawal penalties that wipe out your earnings.

Cadence bankers take the time to have in-depth conversations with customers about their savings goals to better understand their needs. “This enables us to make the right savings account recommendations, based on each customer’s objectives,” says Puryear.

Learn more about Cadence Bank savings accounts, money market accounts and CDs. And if you have questions about choosing a savings vehicle for your needs, please contact us today. One of our personal bankers would be happy to meet with you and help you make an informed decision.

  Pros Cons May be a good choice if:
Money Market Account
  • Pays higher interest rate than traditional savings account
  • Check writing ability (limited)
  • Must maintain a relatively high minimum balance to avoid fees
  • You have a relatively large amount of money
  • You want to earn a higher interest rate than you could in a savings account
  • You need ready access to the funds
  • Pays higher interest rate than a money market account
  • Interest rate is fixed
  • Must leave money in the CD until it matures
  • You want to earn the highest interest rate possible
  • You are comfortable keeping your money locked up for a minimum period of time


This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

dot image